and that I was getting was very high. My royalty rate was 33 percent of their
gross margin. And VisiCalc’s was higher—they got 35.7 percent. At the time the
contracts were done, the economics of the business, which was a new business
of packaged software for PCs, was not well enough understood to know that
that was obviously an insupportable thing to do. But it quickly became apparent,
because huge sums were flowing back to the authors, but the publisher was
the one that was incurring very significant expenses for support—which was
their responsibility—and all the marketing and sales expenses. Anyone who is
familiar with the business understands that royalty rates adjusted downward
pretty quickly.
So here’s the way the world looked to me at the time: I have a hit product—
not a number one product, but it’s making money. And it has an insupportably
high royalty rate. I no longer work for the publisher, but I know how they think
and I’m uncomfortable with them. And I know they don’t want to work with
me. So I felt what I should do is to have them buy me out. They would get control
of the code, close out the royalty stream, and I would go do whatever I was
going to go do next. I saw that was in everybody’s interest. And that’s in fact
what happened. They bought us out for $1,200,000, so I made a whole bunch of
money. I had never made more than $14,000 a year—I told you what kinds of
jobs I had. We had taxes to pay and I had a partner to take care of, but I wound
up with $600,000, which I divided into two piles. (I’ll talk about that in a
minute.)
The non-compete was the hinge issue. I’d been thinking about what I
wanted to do next and in fact had hired Jonathan Sachs, who was the person
who architected and implemented the original version of 1-2-3. We had the
basic concept in mind, which was an integrated spreadsheet and graphing program
with other stuff. They bought me out 6 months after we started, which
was in November ’81, and Sachs had started in the summer of ’81. We didn’t
have any code. We were considering a bunch of different ideas. It was still very,
very early, but I knew I wanted the ability to go do this thing.
I also knew the publisher wasn’t going to do the buyout if they didn’t have a
really strong non-compete. But remember, I had done a graphics and statistics
program, not a spreadsheet, and I proposed that they carve out an exception in
the buyout to do this integrated graphing calculator program, betting that they
would be sufficiently motivated to get the deal done that they would look at this